Manhattan’s investment real estate sales slumped 45% last year as higher interest rates, among other factors, soured investor appetite in property types from office to multifamily.
Investment property sales in 2023 dropped to $11.1 billion in the New York borough, the worst year in the past decade when the tally in 2020, the year the pandemic began, was excluded, according to a study by Ariel Property Advisors. The number of deals last year also fell 33% to 280.
Among different property types, 2023 multifamily sales slumped 64% to $2.71 billion with the number of transactions signed also down about a third to 163.
On the office front, sales volume fell 58% to $2.87 billion with the number of deals sliding by half to 24, “a historically low year in transaction activity,” Ariel said. With the pandemic-driven hybrid work trend coupled with economic uncertainty that have upended the office sector, the property type’s sale per square foot last year declined to $848 per square foot, from $1,088 in 2022 and the lowest since at least 2017.
Development sales also fell 45% to $1.48 billion.
“Looking back at 2023, investors maintained the same conservative approach to the market as they’ve held since 2021, expressing concern about higher interest rates, rising expenses, and apprehension over the potential expansion of residential rent regulation,” Ariel’s director of investment sales, Howard Raber, said in a statement.
There was one major bright spot, however. Commercial property sales, including hotels and retail, saw 2023 investment sales volume jump 41% to $3.45 billion, helped by such deals as Prada’s purchase of a Fifth Avenue property housing its flagship store. Hotel sales also generated close to $2 billion in Manhattan last year, the biggest amount since 2019, as the average daily hotel rate peaked in October and November at $362, up from $291 during the same period in 2019, according to the study.
As to its investment outlook for this year, Ariel said the market is “approaching 2024 with a sense of cautious optimism,” thanks to factors including a “strong macroeconomic environment, softening inflation expectations” and signals from the Federal Reserve that it will cut interest rates multiple times.
To be clear, Ariel said it’s keeping an eye on wild cards such as developments surrounding tenant protection and rent regulations that limit landlords’ ability to raise rents and evict tenants. New development sales, meanwhile, will once again depend on whether any progress is made between in bringing back some form of 421-a tax incentive program to stoke multifamily housing development in exchange for a portion of it being affordable.